On ACA, the Court Reduces the Stigma of Going 'Naked'

More people may decide not to buy health insurancePhotograph by Roy Hsu

Jubilant supporters of the Affordable Care Act have paid little attention to the language the Supreme Court used to uphold the act’s individual coverage mandate. Opponents of the act, having failed to kill the mandate as a power grab by the government, may turn now to undermining it as something quite easy to ignore—not really a mandate at all.

By explicitly saying that noncoverage is not illegal, the opinion written by Chief Justice John Roberts could reduce the social stigma for people who don’t buy health insurance. If that stigma is diminished, many healthy people may decide they’re better off skipping coverage and paying a relatively modest tax instead. And if that happens, the “death spiral” of shrinking coverage that economists have warned about could still happen.

When coverage is perceived as mandatory, “A lot of people will say, ‘We’re supposed to do this so we’ll do it,’” says Paul Ginsburg, president of the Center for Studying Health System Change in Washington. But if coverage begins to be perceived as optional, more people may decide to opt out. “It will defuse some of the potential political anger” from people who resent the government’s telling them what to do, Ginsburg says, “but it also may make the mandate somewhat less effective.”

Not everyone agrees. Jonathan Gruber, an influential health-care economist at the Massachusetts Institute of Technology, writes in an e-mail that the difference between a tax and a mandate “is a pretty subtle distinction.” Gary Claxton, a vice president at the Kaiser Family Foundation, told me, “I think people have known that the penalties were never that strong.” What really induces people to insure themselves, he says, are the subsidies for lower-income families and the risk for higher-income families that a catastrophic illness will wipe out all their wealth.

It’s impossible to know who’s right until the mandate takes effect in 2014, followed by the penalties. But there is evidence that people comply more fully when they’re told something is wrong than if they simply have to pay a fee. Behavioral economists like to cite the case of parents showing up late to collect their children from day care. In an experiment at 10 private day-care centers in Haifa, Israel, in 1998, researchers tested how parents would respond when a small fine for arriving late was imposed. “After the introduction of the fine we observed a steady increase in the number of parents coming late,” Uri Gneezy of Technion and Aldo Rustichini of Tilburg University in the Netherlands wrote in the Journal of Legal Studies.

Parents who began to show up late more often may have concluded, “When a service is offered for a price, buy as much as you find convenient,” write Gneezy and Rustichini. That’s analogous to families deciding that it’s societally acceptable to pay a tax and go naked on insurance.

Aware of the importance of social norms, the drafters of the Affordable Care Act described the payment for noncoverage as a “penalty.” (Beginning in 2016, it comes to 2.5 percent of an individual’s household income, but not less than $695.) But to the court, it’s a penalty in name only. Roberts notes that the government itself, in defending the law, fell back on the argument that it could be perceived as a tax.

Roberts’s opinion notes that the Congressional Budget Office itself predicted that about 4 million people each year would choose to pay the IRS rather than buy coverage. “That Congress apparently regards such extensive failure to comply with the mandate as tolerable suggests that Congress did not think it was creating 4 million outlaws,” Roberts wrote.

One can imagine, in 2014, a cottage industry of lawyers, accountants, and politicians citing these words to tell people they don’t have to buy coverage if they don’t want to. If lots of healthy people choose to go uncovered, insurers will be forced to raise premiums to cover their relatively sick base of customers, in turn forcing even more healthy people to abandon coverage in a downward spiral.

The irony here is that Roberts’s decision to interpret the mandate as a tax is the only thing that saved it from being overturned. The court rejected the government’s argument that the mandate was permitted under the Constitution’s Commerce Clause. Congress has much broader authority in taxation, so construing the mandate as a tax made it constitutionally kosher.

Opponents of the individual mandate “built it up as being something ominous. Now they’re trying to build it down as something that doesn’t matter very much,” says Kaiser’s Claxton. “The truth is that it was always something in between.”